Delgado v. Ocwen Loan Servicing, LLC

MARGARITA DELGADO, WILLIAM SHEPPARD, NAIHUAIXU, and GERALDINEMAHOOD, individually and on behalf of all others similarly situated, Plaintiffs, v. OCWEN LOAN SERVICING, LLC, CROSS COUNTRY HOME SERVICES, INC., SANDRAFINN, and JOHN DOES 1-10, Defendants.

13-CV-4427 (NGG) (RML)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

September 23, 2014

MEMORANDUM & ORDER

NICHOLAS G. GARAUFIS, United States District Judge.

Plaintiffs Margarita Delgado, William Sheppard, Naihuai Xu, and Geraldine Mahood (collectively, "Plaintiffs") bring this putative class action against Defendants Ocwen Loan Servicing, LLC ("Ocwen"), Cross Country Home Services, Inc. ("Cross Country"), its President Sandra Finn ("Finn"), and John Does 1-10 (collectively, "Defendants"). Plaintiffs claim that Defendants engaged in a deceptive check solicitation scheme that led Plaintiffs and other consumers to unknowingly enroll in and pay monthly fees for Cross Country's home warranty plans. Plaintiffs allege multiple causes of action, including violations of the Racketeer Influenced and Corrupt Organizations Act ("RICO") and consumer protection laws of New York and California. Defendants move to dismiss the First Amended Complaint ("FAC") pursuant to Federal Rule of Civil Procedure 12(b)(6) and also argue that the FAC fails to satisfy the pleading standards of Rules 8(a) and 9(b). (Ocwen Mot. to Dismiss ("Ocwen Mot.") (Dkt. 33); Cross Country Mot. to Dismiss ("CC Mot.") (Dkt. 34).) After the parties completed briefing on themotions to dismiss, Plaintiffs requested leave to supplement the FAC under Federal Rule of Civil Procedure 15. (Mot. to Suppl. Compl. (Dkt. 40).) For the reasons set forth below, Plaintiffs' request for leave to supplement the FAC is DENIED and Defendants' motions to dismiss are GRANTED IN PART and DENIED IN PART.

I. FACTUAL BACKGROUND

Except where indicated below, the following factual allegations are drawn from Plaintiffs' First Amended Complaint and the exhibit thereto. (FAC (Dkt. 25).)

A. The Parties

Ocwen is a loan servicing company that services more than 600,000 residential home loans across the country. (FAC ¶ 21.) Ocwen's customers included Margarita Delgado and William Sheppard (the "Delgados" or "Delgado Plaintiffs"), a married couple residing in New York (Id. ¶ 18), and Naihuai Xu ("Xu") and Geraldine Mahood ("Mahood"), two California residents (id. ¶¶ 19-20).

Cross Country is a corporation that sells home warranty programs and other home appliance service and maintenance plans to homeowners. (Id. ¶¶ 22, 36.) Cross Country and its President, Finn, market and sell these plans through various subsidiaries and affiliate companies they control that operate in several states, including New York and California. (Id. ¶¶ 24-28, 36.) To seek out new customers, Cross Country partners with businesses that have large homeowner customer bases, to which Cross Country markets its plans. (Id. ¶¶29, 37.) On its website, Cross Country claims that its plans and other "add-on products" can "increase revenue" for its potential partners. (Id. ¶¶ 37, 149.) Ocwen was one such partner. (Id. ¶ 30.)

B. The Alleged Check Solicitation Scheme

Plaintiffs allege that as early as 2007, Cross Country and Finn sent mailings to Ocwen's customers in New York, California, and other states (the "solicitation(s)"), soliciting their enrollment in Cross Country's home warranty plans, appliance maintenance plans, and similar membership programs, collectively referred to in this Order as "home warranty plans." (Id. ¶¶ 27, 38-39.) The solicitations were in the form of a foldout check mailer bearing the words "CHECK ENCLOSED" in large print on the front of the envelope.¹ (Id. ¶ 40 & Ex. (Dkt. 25-1) at 2, 4.)² Situated under Ocwen's logo in the upper left corner, the return address lists "Ocwen" and a post office box address in Fort Lauderdale, Florida. (Id.) The envelope is addressed to the Ocwen customer by name. (Id., Ex. at 2, 4.) Enclosed is a valid, negotiable check made out to the Ocwen customer for a small amount such as $2.50. (Id.) The payor of the check is listed as "CCHS" accompanied by a post office box address in Fort Lauderdale, Florida.³ (Id. ¶¶ 40, 48 & Ex. at 2, 4.) The last three digits of the post office box number on the check differ from those in the envelope's return address, but the addresses are otherwise the same. (Id.) Although it is difficult to read, Finn's signature appears at the bottom of the check above the words "authorized signature." (Id. ¶ 48 & Ex. at 2, 4.) Neither the envelope nor the check is labeled as a solicitation.

Accompanying the check is a sales pitch for Cross Country's home warranty plan. (Id., Ex. at 3, 5.) The language varies according to the specific plan being marketed, but the pitch commonly exhorts the recipient to cash the check and highlights the savings that will result. (Id. ¶ 41, Ex. at 3 ("Simply cash or deposit the attached check and we'll pay you to see for yourself the rewards and benefits of Referral Assistant 24."), 5 ("The enclosed Check is made out in your name. It's yours to cash so please do not throw it away. Bring it to your bank by May 31, 2013, sign the back and get your $2.50 instantly.") (emphasis in original).)⁴

Certain disclosures are included in the solicitation materials. Above the check's dollar amount in typeface smaller than the surrounding text—i.e., the check number, date, and amount—is the warning "[b]y cashing or depositing this check, you are purchasing the annual [home warranty plan]." (Id., Ex. at 2, 4.) Nothing on the front of the check discloses that by cashing or depositing the check the customer will be subject to a monthly fee. (Id.) The back of the check contains a more detailed disclosure, which in one example states in fine print:

By cashing or depositing this check, I understand that I am purchasing an annual Systems MD Gold Home Service Plan and understand that $44.95 per month will automatically be charged to my Ocwen Loan Servicing mortgage payment unless I cancel my Plan by calling toll-free 1.800.474.4047 within 30 days from the date this check is cashed or deposited. I understand that this is an annually renewable Plan and the monthly cost of $44.95 will continue to be collected with my monthly mortgage payment until I cancel the Plan.⁵

(Id., Ex. at 5.) This entire message is located in the small area above the endorsement line. (Id.) The insert includes a paragraph containing a very similar disclosure near the end of the salespitch. (Id. at 3, 5.) In addition, the enclosure states that customers should expect to receive an agreement concerning the home warranty plan within seven to ten days of cashing the check. (Id.)

Upon cashing or depositing the check, the customer is enrolled in the home warranty plan for a 30-day trial period during which the plan can be cancelled without incurring any charges. (Id. ¶ 65.) Although the sales pitch claims that the customer will receive a service agreement within seven to ten days of cashing the check, Plaintiffs allege that Cross Country does not always send information about the plan during the trial period.⁶ (Id.) Further, the customer cannot actually try out the benefits of the home warranty plan during this time because the solicitation does not contain information about how to contact Cross Country or redeem the benefits, and there are many limitations and exemptions that apply during the trial period. (Id.) After the trial period, the customer is enrolled in an annual membership for which Cross Country assesses a monthly fee. (Id. ¶ 66.) Ocwen bills these charges as a line item on the customer's mortgage statements and refers to the fees in escrow statements and other notices issued by Ocwen. (Id. ¶ 67.) These bills and notices list the fees as "optional insurance," "home warranty," "Systems MS Gold," or other names that do not clearly indicate that the charges are associated not with Ocwen, but with Cross Country. (Id. ¶¶ 67-69.)

Plaintiffs allege that customers were misled by the solicitations, either believing they were rebates or refunds from their loan servicer Ocwen, or recognizing that the solicitations were for home warranty plans but believing the benefits of the plans were much greater than their actual value. (Id. ¶¶ 39-42, 48, 50, 74, 79, 94, 99.) The FAC also incorporates postings from thewebsite "Pissed Consumer," in which other purported Ocwen customers complain about being similarly deceived by the solicitations. (Id., ¶ 74.) Plaintiffs claim Ocwen's billing tactics further misled customers by not clearly identifying the source of the additional monthly charges. (Id. ¶¶ 70-72.)

Plaintiffs allege that Defendants worked together to intentionally deceive Ocwen customers into enrolling in Cross Country's home warranty plans. (Id. ¶¶ 4-5, 39,42, 73, 147.) Plaintiffs claim that Defendants knew customers did not realize they were enrolling and subsequently did not use the limited benefits of the plans. (Id.) Defendants then shared the fees collected from enrolled customers. (Id. ¶ 66(ii).)

C. The Plaintiffs' Experiences with Defendants' Check Solicitations

1. Delgado Plaintiffs

Ocwen began servicing the Delgado Plaintiffs' home mortgage loan in 2011 after purchasing a loan portfolio that included their loan. (Id. ¶ 34.) In or around August 2011, Cross Country and Finn sent the Delgados a check solicitation for the "Systems MD Gold Home Warranty Plan." (Id. ¶¶ 76, 79.) As with Cross Country's other solicitations, the envelope listed only Ocwen in the return address field. (Id. ¶ 77.) Enclosed was a check for $2.50 made out to William Sheppard that listed "CCHS" as the payor. (Id. ¶ 77.) Believing the check to be a rebate or refund from Ocwen, the Delgados deposited it on November 23, 2011, unaware that by doing so they were enrolling in Cross Country's home warranty plan. (Id. ¶¶ 48, 79.) They never received a service agreement detailing the terms of the plan. (Id. ¶ 88.)

On or about December 20, 2011,...